Maya MacGuineas and Bill Galston: A Balanced Plan to Stabilize Public Debt and Promote Economic Growth

Yesterday, we released a new budget blueprint to stabilize the debt by the end of the decade. The plan, which would start to phase in in 2012, is fashioned to help promote economic growth by phasing in only once the economy is strong enough, but at the same time, signaling to markets and business that the U.S. would get back on a sustainable fiscal track.

It is guided by 5 principles:

Shared sacrifice

Economic growth

Protecting the most vulnerable

Increasing transparency and the need for fundamental tax reform

Facing up to demographic and health care realities

The plan achieves the medium-term goal through a 50-50 split between spending reductions and tax increases (though most revenue changes come from tax expenditures cuts, which are really closer to spending reforms.) Under the plan, outlays in 2020 would amount to 22.0% of GDP, down from CBO’s estimate of 25.2% for President Obama’s budget. Revenues would total 21.4% of GDP, up from 19.6%. The deficit would fall from 5.6% of GDP to 0.7%.

The plan includes a war surtax starting in 2015 to cover any ongoing war-related costs; a suite of changes which would return Social Security to solvency; a long-term healthcare budget; a new framework for reducing tax expenditures; and a number of reforms to improve the tax code including replacing part of the payroll tax with an energy tax.

* Savings would be higher compared to more realistic growth trends, but the President’s baseline already assumes relatively low levels of discretionary spending.

The plan was released at the CRFB “Let’s Get Specific” forum, featuring many specific budget ideas by experts and politicians and we remain hopeful that the coming year will be the year of getting specific on crafting a national fiscal fix.

Maya MacGuineas is director of the Fiscal Policy Program at the New America Foundation and president of the Committee for a Responsible Federal Budget.Bill Galston is a senior fellow at the Brookings Institution.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.